The ETF MMS (Lyxor), listed in Euro, replicates the UCIT Small Cap Europe Index, which targets Eurozone companies whose market capitalization is between € 200 and € 1500m, ie companies that are ultimately more medium in size than microstructures.
The ETF charges are 0.4%, and the replication mode is indirect (via swaps), with a reasonable AUM of approximately 210M€. The dividend distribution policy is carried out by distribution.
Alternative ETF: IEIS ( iShares USD) SMAE ( Lyxor EUR)
Latest developments
The ETF MMS fell by 17.3% in 2018, after a rise of 21.3% in 2017, and rebounded by 13.8% in 2019 which characterizes the amplification of the trend compared to the Stoxx600NR up and down. This amplification is linked to the greater volatility of the average values, but also to the growth and industry sectors that are strongly represented in the index.
The growth rate of average EPS should again be higher than that of large SROxx600NR stocks, which should record more moderate growth in 2019. The absence of banks in the index is also a factor to take into account for the performance of the index.
The index of average values could therefore resume the path of outperformance, while the major potential shocks (US recession, trade war ...) seem to move away in the short term.
Index & components
The index replicated by the ETF includes 465 companies with wide sectoral and geographic diversification which makes it a broad and very diversified index.
The specific risk is low because the first 10 lines represent approximately 10% of the fund, or about 1.5% for the most important lines, including iconic growth stocks such as Rubis, Rheinmetall or Orpea.
The major economies (Germany, France and Italy) account for 52% of the selection, leaving a significant share for the Nordic economies such as Finland or the Benelux.
The Small Cap ETF represents an opportunity to play the growth of the euro area with a risk even below the benchmark index (stoxx600) - due to the absence of large banks - a policy of dividend distribution and with a much more assumed growth profile. Indeed, sectors considered defensive-telecoms, basic consumption, utilities and energy represent only 15% of the MSCI Small caps index, while growth sectors (Technology / Hardware, Consumer Discretionary , health) represent about 1/3 of the index, the first sector remains the industry with nearly 20% of the capitalization.
It should also be noted that unlike the Stoxx600, the United Kingdom is not part of the selection, MMS is therefore only focused on continental Europe and therefore there is no currency problem.
We believe that the Eurozone is attractive in the medium term if the economic recovery is confirmed supported by rather low interest rates and energy costs, while the political cycle is completed. Although valuations of growth stocks are still fairly demanding, and a temporary return to "value" cannot be ruled out, new technologies and new economic models, particularly those resulting from digitization, make this theme a " megatrend ".
The long-term potential is clearly in favor of growth stocks and MMS which also includes industrial stocks seems to us to represent an excellent risk / reward ratio in a long-term perspective with a positioning more advantageous than the stoxx600.
